UK savers are facing a reduction in their tax-free cash allowance, with a countdown underway that could see them losing £8,000. This change, set to take effect in April 2027, will lower the annual limit for tax-free deposits into a cash ISA from £20,000 to just £12,000 for individuals under 65.
Effectively, this means that £8,000 of the tax-free allowance will no longer be available for savers, as it is redirected towards encouraging investment in the stock market by the government.
Savers have only the current tax year (2026/27) to maximize their deposits before the new limit comes into effect. This adjustment was unveiled in the previous year’s Budget speech by then-Chancellor Rachel Reeves.
Reeves emphasized the potential financial benefits of investing in stocks and shares ISAs over cash ISAs, highlighting a £50,000 advantage for those who had consistently invested in stocks and shares ISAs compared to cash ISAs since 1999. She announced the forthcoming reform of the ISA system, preserving the £20,000 allowance but earmarking £8,000 specifically for investment, with individuals over 65 retaining the full cash allowance.
For individuals who prefer holding cash temporarily in their stocks and shares ISAs, a new 22% flat charge on interest earned, known as the “anti-circumvention rule,” will apply starting in 2027. This distinction underscores that cash ISAs and stocks and shares ISAs will be subject to different tax treatments if cash is held within them.
The upcoming changes aim to steer younger savers towards investing in the stock market, maintaining the existing £20,000 cash ISA allowance while encouraging a shift towards investment vehicles.
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